SEBI banned Karvy Stock Brokers from acquiring new contracts, clients and launching new schemes for six months in matter of irregularities in IPOs during 2003-2005

Market regulator Securities Exchange Board of India (SEBI) has barred Karvy Stock Broking Ltd (KSBL) from taking up new assignment, contracts and launching new schemes as well as not to take new clients or customers in respect of its business as a stock broker for six months for involving in initial public offering (IPO) irregularities during 2003-2005.

However, this order would not be given effect for four weeks from the date of its receipt by KSBL, as per a direction of the Securities Appellate Tribunal (SAT).

SEBI found that KSBL was involved in the large-scale irregularities in as many as 21 IPOs during 2003-2005. In its order, the market regulator said, “KSBL failed to maintain high standards of integrity and further indulged in manipulation and malpractices and thereby violated the code of conduct specified in its Broker Regulations.”

In its probe, SEBI noticed certain irregularities with respect to IPO of different companies. Few entities had opened various demat accounts in fictitious (benami) names and acquired the shares of IPOs in the category of retail investors using these accounts. Pursuant to the allotment, these shares were transferred to the demat account of these key operators and from thereon to ultimate beneficiaries, who were the financiers in the process, SEBI said.

SEBI further observed that KSBL has played an active role in aiding and abetting key operators in their devious scheme of cornering of shares. SEBI enquiry officer in order alleged that, Karvy had nexus with some key operators in facilitating their game plan of cornering of shares in the various IPOs which were meant for the retail category and the sale of those shares.

Earlier, SEBI passed various ex-parte interim orders between December 2005 and April 2006 issuing directions against various entities including those of Karvy group. In June 2008, three entities of Karvy group, including KSBL, appealed before the SAT for asking to pass three separate orders against them, while giving a four-week time for orders to come into effect. KSBL had also sought to settle the case through SEBI’s consent mechanism, but its plea was rejected by the market regulator.

An interesting aside to the controversy at United Bank of India is that no political party or opposition leader has questioned RBI or the finance ministry on the rapid decline of this bank, for a second time. A hallmark of the United Progressive Alliance’s regime is that the crony club of politicians and industrialists covered the entire political spectrum, including the main opposition parties. Various mega-scams under the UPA, such as loot of natural resources and infrastructure contracts structured as public-private-partnerships, were funded by massive loans from public sector banks. Academic articles on RBI’s own website confirm that the sharpest increase in bad loans, since the turn of the century, happened in 2012 and 2013; in these two years, the incremental accretion to bad loans trebled compared to 2011 and earlier.

Power and infrastructure were the two sectors that saw the sharpest increase in bad loans since 2012; most of these are with public sector banks. With general elections a few weeks away, bankers are now turning bold and admit to pressure from the ruling coalition to keep lending to these sectors and to favoured industrialist-politicians.

Why has RBI remained a mute spectator to the sharp escalation in bad loans over the past five years? RBI, as India’s monetary authority and banking regulator, is never held accountable for its many lapses in supervision or its spending. A retired central banker says, from chief general manager upwards, most central bankers are far too busy logging frequent flying miles and garnering fat daily allowances. Many enter the Mint Street headquarters only to submit their vouchers before taking off again. That is one reason why policy decisions take forever and there is little time to discuss and analyse inspection reports about banks.

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COMMENTS

Parmod Sachdeva

2 years ago

We as a country have failed to manage our affairs, this fact is now widely acknowledged by the world, but not by us, we feel 21st century is ours. How can a nation not able to even feed its population can boast of becoming a super power. Even our capital do not have drinking water for all, what to talk of other part of the country.

Parmod Sachdeva

2 years ago

We as a country have failed to manage our affairs, this fact is now widely acknowledged by the world, but not by us, we feel 21st century is ours. How can a nation not able to even feed its population can boast of becoming a super power. Even our capital do not have drinking water for all, what to talk of other part of the country.

S K Gupta

3 years ago

Here is the paradox!!!!
PSU Vs Private Banks.
- Private Banks Are looting Consumers in all possible way and making money for their stakeholders so they are looking profitable and healthy.
- PSU Banks are on a reckless lending spree to Big Borrowers and thus looting Depositors and Government is the Stake Holder so its squeezing in the Tax Payers money to keep PSU's survived.
They whole sectors is Morally Sick.

MG Warrier

In Reply to S K Gupta3 years ago

The public-private sector divide is an illusion created by vested interests. Both sectors are dependent on 'PUBLIC' for resources, skill and market. In private sector, individuals or group of individuals get a hold on 'scarce' resources or skill and after 'monopolising dictate prices or 'rent'.

olga tellis

3 years ago

if its true that most of these officials come t their office only to collect vouchers and fly off again, then its scandalous and RBI will have to start looking within before reforming the banking system. maybe dr raghuram rajan should form a committee to look into this allegation which would greatly help the central bank!!!

S K Nataraj

3 years ago

We have had several bank mergers which were effected only to save weak banks. We have not learnt our lessons yet, and continue to do deal with advances in a very unprofessional manner. Banks never realise that they are the custodians of money of depositors. Loans have to be given after due diligence only and to the credit- worthy. We have had the loan melas in the past and nowadays, with the accent on delivering more to the SME- Retail , Educational, and other sectors and under the poverty alleviation programmes, a lot of the money is simply lent without any thought about its safety. This fact is borne out by the recent announcement of write- off of educational loans with governmental grant. This will only encourage more educational loans to not be paid back. Let us learn to treat loans as loans and not as gifts. This should be clearly understood by every banker, particularly by those at the helm of affairs and at the RBI and in Min of Finance, Banking a Department. It's high time we reinforced safety measures in lending, which are long overdue, to strengthen our banking and financial system.

Ramesh Jaradhara

3 years ago

There might be some lapses somewhere with the regulator(RBI) in dealing with PSU Banks. If the allegations expressed in the article is to be believe,self interest and lethargy on the part of officials looking after banking operations are responsible for deterioration of functioning of banks, specially credit management.RBI shall not keep mum while watching loot of PSU banks by industrialist+political robbers.

Yerram Raju Behara

3 years ago

RBI's transparency is more on paper. It releases documents for comments and discussion but always puts forth what is there in its draft submissions on website. Regulator can be transparent but not nude, agreed. But what prevents RBI from making known to people the suggestions received and rejected?
Second, how on earth that the thousands of crores of rupees of NPAs periodically join the NPAs when it has regular information on the corporate loans sanctioned; directors' interests, CDRs etc? All said and done, RBI representative sits on the PSB Boards. Is there a regulatory arbitrage and therefore, the RBI silent on the misdemeanors of the Banks? The Economist in its latest weekly acknowledges two institutions in our economy and body politic - the RBI and the Supreme Court. We take definitely pride in it. But the recent happenings of the UBI allowing the Chairperson to voluntarily retire after the huge NPAs surfaced leaves many in doubt.

Gopalakrishnan T V

3 years ago

The loot is known to all including RBI but it has its own limitations.The Interference of the Government in day to day operations of both RBI and the Commercial Banks is something unknown to many and many things are pushed under the carpet. RBI does not have the autonomy and the Government's clearance is required if not in writing but orally to act against any bank.Right from the appointment of Directors to the approval of loansin banks, the Government's interest is dominant and decisions are based on that. RBI gets indications and has to necessarily act. The opposition if any from RBI by any chance is always at a risk and the Government starts dictating. Even the updation of pension of RBI retired employees has been withheld for no genuine reason is what is the ground reality reflecting RBI's lack of autonomy. The author's approach to call a spade a spade is appreciable and commentable, but RBI's position is something unique and has to play some sort of balancing act is what finally one observes.

MG Warrier

3 years ago

Front page lead story in one of the financial newspapers today(March 19)had this caption : “Deficit worry? Banks told to remit TDS by month-end”…The story begins with this introductory: Move comes on heals of FinMin request to banks for a minimum dividend of Rs6,803 cr”
Realities can be much more startling. The health of public sector banks has a direct relationship with the owner’s approach to their management. This is not to defend the regulator or to argue that we should ‘let go’ the goings on in cases like the fast deteriorating condition of the United Bank of India. The purpose is just to point out that RBI is also staring at an adamant finance ministry which has no worry about the strength of public sector organisations.

SuchindranathAiyerS

In an India accustomed to cover ups and kow towing to criminals, all truth must appear too harsh?

MG Warrier

In Reply to SuchindranathAiyerS3 years ago

I am with Moneylife. Keep trying to tell truths or what appears to you to be truth. You will be denied your dues and sometimes ridiculed,branding you 'unfit' for the present day world. But no one prevents you from 'EXPERIMENTING WITH TRUTH'!